Yamir Packaging Pvt. Ltd., Ahmedabad V. The Dy.CIT, Circle - 8, Ahmedabad

ITA 534/AHD/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7027 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 20-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 37

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH C BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.534/AHD/2014 / ASSTT. YEAR: 2010-2011 YAMIR PACKAGING P.LTD. 11, YES HOUSE SHIVALIK PLAZA OPP: AMA, IIM ROAD POLYTECHNIC, AHMEDABAD 380 015. PAN AAACY 0728 N. VS. DCIT, CIR.8 AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI TUSHAR HEMANI, AR REVENUE BY : SHRI KAMLESH MAKWANA, SR.DR ! / DATE OF HEARING : 04/12/2018 '#$ ! / DATE OF PRONOUNCEMENT: 17 /01/2019 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT(A)-I, AHMEDABAD DATED 19.12.2013 FOR THE ASS TT.YEAR 2010-11. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES AT THE RATE OF 13% ON ADDITIONS MADE TO THE FIXED A SSETS DURING F.Y.2009-10. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 2.10.2010 DECLARING TOTAL INCOME (-) RS.6 ,57,45,872/-. THE ITA NO.534/AHD/2014 2 CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THA T DURING THE YEAR UNDER CONSIDERATION IT HAS MADE ADDITION IN THE ASS ETS OF RS.21,77,49,433/-. THIS INCLUDES WORK-IN-PROGRESS OF RS.1,63,97,510/- OUTSTANDING IN THE BOOKS OF ACCOUNTS AS ON 31.3.200 9. ACCORDING TO THE AO, SECTION 36(1)(III) CONTEMPLATES THAT THE INTERE ST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF ASSETS FOR EXTE NSION OF EXISTING BUSINESS FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSETS TILL THE DAT E ON WHICH SUCH ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS DEDUCT ION. HE EXAMINED THE DATE OF ACQUISITION OF ASSETS VIS--VIS THEIR A CTUAL USER AND ARRIVED AT A CONCLUSION THAT THE INTEREST AT THE RATE OF 18 % REQUIRED TO BE CAPITALIZED BECAUSE SOME OF THE MACHINERIES WERE PU T TO USE ON 1.7.2009, WHEREAS THE PAYMENT FOR ACQUISITION OF TH ESE ASSETS WERE MADE FROM 1.4.2009. THE LD.AO HAS PREPARED A TABLE SHOWING DETAILS OF ASSETS, BOOK VALUE, DATE OF PAYMENT, DATE OF PUT TO USE AND AMOUNT OF INTEREST AT THE RATE OF 18% FROM 1.4.2009 TO THE DA TE OF ASSETS PUT TO USE. HE WORKED OUT SUCH AMOUNT AT RS.1,19,17,827/- . HE GRANTED DEPRECIATION ON THESE CAPITALIZED ASSETS AND ULTIMA TELY MADE AN ADDITION OF RS.1,12,37,056/-. 4. DISSATISFIED WITH THIS WORKING OF THE AO, ASSESS EE CARRIED THE MATTER BEFORE THE LD.CIT(A). IT HAS RAISED MULTI-F OLD SUBMISSIONS. IT FIRSTLY CONTENDED THAT INTEREST PAID TO THE BANK WA S 13% AND NOT 18% AT WHICH THE AO HAS CALCULATED THE INTEREST FOR CAP ITALIZATION. IT FURTHER CONTENDED THAT OUT OF THE TOTAL ASSETS ACQUIRED BY THE ASSESSEE, 35% WERE PURCHASED FROM INTEREST-FREE FUNDS AVAILABLE W ITH THE ASSESSEE. AN EXPLANATION QUA THIS EFFECT HAS BEEN GIVEN TO THE LD.CIT(A) AND CO PY OF SUCH EXPLANATION IS AVAILABLE AT PAGE NO.27 AND 28 OF THE PAPER BOOK. SIMILAR EXPLANATION HAS BEEN GIVEN ON 17.12.2013 WH ICH WAS AVAILABLE ON PAGE NO.29 AND 30. ITA NO.534/AHD/2014 3 TO, THE COMM. OF INCOME TAX, (A) 1, ROOM NO. 339, 3RD FLOOR AAYKAR BHAVAN, ASHRAM ROAD, AHMEDABAD. REF: NOTICE U/S. 250 OF THE ACT IN CASE OF YAMIR PA CKAGING PVT. LTD. A.Y.2010- 11 SUB: WRITTEN SUBMISSION RESPECTED SIR, FURTHER TO OUR SUBMISSIONS DATED 22ND OCTOBER 2013 AND AS REQUIRED BY YOUR HONOR, OUR EXPLANATIONS ARE AS UNDER: TOTAL FUNDS EMPLOYED IN THE INDUSTRY RS. IN LACS INTEREST FREE FUNDS PAID UP CAPITAL 293.98 RESERVES AND SURPLUS 268.19 SALES TAX DEFERMENT 514.47 DEFERRED TAX 125.18 TOTAL OWN FUNDS 1201.82 INTEREST FREE CREDITORS (909.52-(295.99+115.77)) 497.76 -------------- TOTAL INTEREST FREE FUND EMPLOYED A 1699.58 --------------- INTEREST BEARING FUND SECURED LOANS 2407.06 UNSECURED LOANS 352.08 INTEREST BEARING CREDITORS 411.76 -------------- TOTAL INTEREST BEARING FUND B 3 170.90 -------------- TOTAL FUNDS DEPLOYED IN INDUSTRY A+B 4870.48 % OF INTEREST FREE FUNDS TO TOTAL FUND 34.90% % OF INTEREST BEARING FUNDS TO TOTAL FUND 65.10% TOTAL NEW INVESTMENT IN EXPANSION 2118.9 2 TOTAL NEW BANK LOAN TAKEN FOR EXPANSION 15 55.16 % OF LOAN FOR NEW EXPANSION 73.39% SIR IT IS CLEAR FROM THE ABOVE THAT WE HAVE ABOUT 3 4.90% INTEREST FREE FUNDS IN THE INDUSTRY WHEREAS WE ARE CONSIDERING OUR MARGIN AT 26.61% ONLY AND ITA NO.534/AHD/2014 4 DISALLOWANCE OF ON LOAN WHICH CONSTITUTES TO 73.39% WHICH WE HAVE IN FACT TAKEN FOR EXPANSION. OUR EARLIER SUBMISSION THAT DISALLOWANCE OF INTERES T ON TOTAL COST OF ADDITIONS ARE NOT IS PROVED FROM OUR ABOVE DETAILS. THE LOAN FOR EXPANSION CONSTITUTE ONLY 73.39%. THE TOTAL EXPANSION IS NOT DONE FROM ONLY I NTEREST BEARING FUNDS. PAYMENTS MADE FROM OUR RESERVES AND OTHER INTEREST FREE FUNDS ALSO. MOREOVER SIR NO BANK WILL GIVE 100% FINANCE FOR ESTABLISHING ANY INDUSTRY. OUR MARGIN IS MUST FOR UP OF ANY INDUSTRY. PLEASE CONSIDER THE FACT THAT ALL ADVANCE PAYMENTS OR OTHER PETTY PAYMENTS ARE FROM OUR MARGIN ONLY. WE HAVE ON OUR OWN HAS GIVEN YOU THE DETAILS OF PAYMENT MADE FROM LOANS AND INTEREST WHICH CAN BE D ISALLOWED AND CAPITALISED IN OUR EARLIER SUBMISSION. WE ARE ALSO ENCLOSING HEREWITH THE PAYMENT DETAILS OF VARIOUS MACHINERIES AS REQUIRED BY YOU. PLEASE CONSIDER OUR ABOVE SUBMISSIONS AND ALLOW THE APPEAL AND OBLIGE. 5. THE LD.CIT(A) HAS GONE THROUGH THESE CONTENTIONS AND THEREAFTER PARTLY ALLOWED APPEAL OF THE ASSESSEE. THE LD.CIT( A) HAS DIRECTED THE AO TO CHECK THE DATE OF PAYMENT MADE BY THE ASSESSE E FOR PURCHASE OF MACHINERY, RATE OF INTEREST WHICH WAS PAID BY THE A SSESSEE FOR AVAILING LOAN, AND DATE ON WHICH THE MACHINERY WAS PUT TO US E, AND THEREAFTER CALCULATE THE INTEREST FOR CAPITALIZATION. 6. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONTE NDED THAT THE ASSESSEE HAS SUFFICIENT INTEREST-FREE FUNDS WHICH C AN TAKE CARE OF ACQUISITION OF THESE ASSTS. HE MADE REFERENCE TO P AGE NO.27 OF THE PAPER BOOK. ACCORDING TO HIM, THE ASSESSEE HAS ALR EADY CAPITALIZED A SUM OF RS.8,97,500/-. IT CAN TAKE CARE OF SUCH EXP ENDITURE AND NO SEPARATE CALCULATION OF INTEREST EXPENSES REQUIRED TO BE MADE FOR CAPITALIZATION. IN SUPPORT OF HIS CONTENTIONS, HE RELIED UPON THE FOLLOWING DECISIONS: > CIT VS. TORRENT POWER LTD. - 363 ITR 474 (GUJ); > CIT VS. SUZLON ENERGY LTD. - 354 ITR 630 (GUJ); > CIT VS. GUJARAT POWER CORPORATION LTD. - 352 ITR 58 3 (GUJ); > CIT VS. HITACHI HOME & LIFE SOLUTIONS (I). LTD. - (2014) TAXNTANN.COM 540 (GUJ); > CIT VS. RELIANCE UTILITIES & POWER LTD. - 313 ITR 34 0 (BOM); ITA NO.534/AHD/2014 5 > MUNJAL SALES CORPORATION VS. CIT - 298 ITR 298 (SC ); ON THE OTHER HAND, THE LD.DR RELIED UPON ORDER OF T HE AO. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. AS FAR AS THE CALCULATION OF INT EREST EXPENDITURE FOR CAPITALIZATION UNDER SECTION 36(1)(III) OF THE ACT REPRESENTING THE EXPENSES FOR ACQUIRING MACHINERY BEFORE IT BE PUT T O ACTUAL USER IS CONCERNED THERE IS NO DISPUTE AMONGST THE PARTIES. IF MACHINERY WAS BEING ACQUIRED FROM INTEREST-BEARING FUNDS AND IT W AS NOT ACTUALLY PUT TO USE, THEN FOR THAT PERIOD INTEREST COMPONENT IS REQUIRED TO BE CAPITALIZED. QUESTION BEFORE US IS, WHETHER THE A SSESSEE IS ABLE TO DEMONSTRATE AVAILABILITY OF INTEREST-FREE FUND FROM WHICH IT CAN BE ALLEGED THAT NO INTEREST EXPENDITURE HAVE BEEN INCU RRED BY IT, WHICH COULD BE CAPITALIZED. WE HAVE PERUSED THE SUBMISSI ONS OF THE ASSESSEE BEFORE THE LD.CIT(A) EXTRACTED (SUPRA) AS WELL AS R EPRODUCED BY THE LD.CIT(A). WE ARE OF THE VIEW THAT FROM THESE SUBM ISSIONS, IT IS QUITE DIFFICULT TO RECORD A CATEGORICAL FINDING. THE LD. CIT(A) HAS THEREFORE RIGHTLY DIRECTED THE AO TO VERIFY THE ADDITIONS MAD E BY THE ASSESSEE. IN OTHER WORDS, LD.AO SHALL VERIFY THREE ASPECTS VIZ. (A) DATES OF PURCHASE OF MACHINERY, (B) AVAILABILITY OF INTEREST-FREE FUN DS WITH THE ASSESSEE ON THE DATE OF PURCHASE; (C) ACTUAL USER OF THE MACHIN ERY, AND (D) RATE OF INTEREST PAID BY THE ASSESSEE ON ITS BORROWINGS. A FTER AVAILING THESE DETAILS, HE WOULD WORK OUT WHICH IS THE ACTUAL AMOU NT REQUIRED TO BE CAPITALIZED. THE LD.AO SHALL THEREAFTER GIVE SET O FF OF ALREADY INTEREST CAPITALIZED BY THE ASSESSEE ON THESE ASSETS. WITH THE ABOVE OBSERVATION, WE TREAT THIS GROUND OF APPEAL AS PART LY ALLOWED. 8. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE A SSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWA NCE OF PRELIMINARY EXPENSES AMOUNTING TO RS.9,39,887/-. ITA NO.534/AHD/2014 6 9. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT T HE ASSESSEE HAS INCURRED EXPENSES OF RS.46,99,434/- AND CLAIMED 1/5 TH OF IT AT RS.9,39,887/-. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT SUCH EXP ENSES ELIGIBLE UNDER SECTION 37 OF THE ACT BEING 1/5 TH , WAS DENIED TO THE ASSESSEE. HE PLACED RELIANCE UPON THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF INDIA CEMENT LTD. VS. CIT, 60 ITR 52 (SC). ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE LD.CIT(A). 10. WE HAVE PERUSED RECORD CAREFULLY. ON PAGE NO.6 5 OF THE PAPER BOOK, THE ASSESSEE HAS PLACED ON RECORD DETAILS OF SUCH EXPENDITURE. THESE PRELIMINARY EXPENSES WERE CLAIMED IN SCHEDULE NO.16. IN SCHEDULE NO.16, THERE ARE NO DETAILS EXCEPT TOTAL A MOUNT AND 1/5 TH WRITTEN OFF BY THE ASSESSEE. THE LD.CIT(A) HAS CON FIRMED DISALLOWANCE ON THE GROUND THAT GENUINENESS OF THE EXPENDITURE H AS NOT BEEN PROVED. NOTHING BROUGHT BEFORE THE TRIBUNAL, AND THEREFORE, AFTER GOING THROUGH THE FINDING OF THE LD.CIT(A), WE DO N OT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A). THERE IS NO EVIDENCE PRODUCED BY THE ASSESSEE IN SUPPORT OF ITS. IN VIEW OF THE ABOVE DISCUSSION, THIS GROUND OF APPEAL IS REJECTED. 11. IN THE RESULT, THE APPEALS OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 17 TH JANUARY, 2019 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 17/01/2019 %& '() *%)$ / COPY OF THE ORDER FORWARDED TO :